The Evolution to Digital and a Brief History of E-Book Costs and Pricing

Digital Burnout!

Much has been tossed around of late RE new publishing models (think wholesale and agency), who should set the price of e-books (think publishers or retailers) and the "all shook up" transitioning, publishing landscape in general :)

It can get awfully confusing! So, to promote a better understanding of how we got to where we are today, a little history of digital publishing, including e-book models/pricing all the way up to the DOL investigation into the alleged price-fixing attributed to the big six publishers and the agency model is offered here.

This history is by no means complete --- but is heavy enough to hopefully be informative to many.

"Only time will tell where in the pricing spectrum--from best-selling $25-plus hardbacks at one end to 99-cent music downloads at the other--e-book prices will settle."

By Narasu Rebbapragada of PCWorld:

UPDATED: E-Book Prices Fuel Consumer Outrage

The Department of Justice is preparing to sue Apple and five major e-book publishers on charges that they worked together to push up e-book prices industry-wide.

UPDATE [March 8, 2012]: The Department of Justice said yesterday it plans to sue Apple and five of the largest e-book publishers in the US on charges that they acted together to push up the price of electronic books, the Wall Street Journal reports.

As discussed in this PCWorld investigative feature from last May, e-book publishers deeply resented large retailers like Amazon selling their e-books at deeply discounted rates under a "wholesale model." Apple introduced a new model--called the "agency" model--where the publisher sets the price of the e-book and the retailer sells it for that price, taking a 30 percent fee.

The Justice Department believes that Apple and the publishers may have colluded to keep the prices of all e-books high, which, if true, would be a violation of anti-trust laws. The publishers have denied the allegations of collusion, and believe that the switch to the agency model has enhanced competition by allowing more e-book publishers to survive.

Following is our investigative feature from last May describing how e-books are (over) priced.

An e-book that costs the same as a printed book doesn’t feel right. No trees died to make it. No heavy machinery ran to print it. No planes flew to ship it. You might need to buy one of those new $139 Barnes & Noble Nooks, announced this week, to be able to read it. So why should you have to spend as much as you would for a heavy hardcover book to own it?

Blame the latest phase of the digital content revolution, now more than ten years strong. As first happened with music, then movies, then print news, the book publishing industry is experiencing a shake-up of rules and roles. In particular, the changing relationship between the book publisher (the company that creates books) and the book retailer (the company that sells books) is causing a chain reaction of confusion, mistrust, and price hikes.The good news is that this phenomenon is inspiring enterprising startups to rethink aging models of book pricing.

The bad news is that it’s pissing people off.

Need proof? Look up Emma Donoghue’s Room: A Novel on Amazon. You can get a new hardcover copy for $14.49, while the downloadable Kindle edition costs slightly less at $11.99. Scroll a bit down the product page, and you’ll see that the average customer review out of 829 (at this writing) is a favorable 4.2 stars out of 5. People like the book.

On the Kindle Store page for the book, scroll some two-thirds of the way down to the “Tags Customers Associate with This Product” section, and you’ll notice that nine out of the top ten tags for this book have nothing to do with its page-turning storytelling. The book, last time I looked, had 105 tags for “too expensive for Kindle,” 85 tags for “9 99 boycott”, 65 tags for “overpriced-kindle-version,” and so on. People don’t like the price.

The 9 99 boycott tag, in particular, was created by Kindle e-book users to express their outrage that the prices of some e-books approach if not exceed the price of their hardcover versions. So far, 5892 Amazon users have tagged electronic Kindle books 36,704 times with the 9 99 boycott tag (here’s how to use the tag).

This reader revolt comes at a tipping point for the book industry. According to the Association of American Publishers, e-book sales reached $164.1 million for the months of January and February 2011, a 169.4 percent increase when compared with the same period in 2010. For the same period, sales of combined categories of print books fell 24.8 percent, with $441.7 million sold.

So while print book sales still exceed e-book sales in absolute dollars, we’re seeing their final glory days. The bankrupt Borders bookstore chain, closing 30 percent of its brick-and-mortar stores, has reported a $24.3 million loss for March. Barnes & Noble executive Marc Parrish said at the GigaOm Big Data conference that the book business was shifting to digital faster than the music, movie, and newspaper industries.

Amazon announced in January that Kindle books have overtaken paperback books as the most popular format on Amazon.com (not so much information on sales of The Kindle), and Forrester Research expects e-book consumers to spend nearly $3 billion on e-books in 2015.

Big book publishers are experiencing the shift to digital. “We've gone from a 90/10 physical and e-book split last year, to closer to 80/20, and expect that to increase again next year to 70/30,” says Maja Thomas, senior vice president of Hachette Digital at the Hachette Book Group, via e-mail while attending this week’s Book Expo. “It is too early to tell how the different paper formats will be affected--although I would expect most mass market buyers to migrate to e [e-books].”

Hachette is referred to as a big-six book publisher, along with HarperCollins, Macmillan, Penguin Group, Random House, and Simon & Schuster. Its suspense imprint Mullholland will be producing many digital-only titles, and it is making illustrated children’s books available on the Barnes & Noble Nook Color.

Publishers Strong-Arm Retailers

The move to digital has traditional book publishers scared, which has resulted in a power struggle with book retailers for the right to price books. The score right now is “advantage book publisher,” but the consequence is that e-book prices don’t reflect the normal laws of supply and demand or the current costs of producing a digital book.

“The pricing is a little wonky right now,” says James L. McQuivey, Ph.D., vice president and principal analyst at Forrester Research, about e-books. It didn’t start that way. When e-books were new, retailers set their prices the way they wanted, but lower than print books--generally at $9.99 for new book releases.

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E-Book Publishing Trends in 2012

In 2011 digital publishing outgrew its pants almost every week it seemed.

Well, hang on to your asses because 2012 e-book maturation and development will be even more explosive!

And e-book pricing ... which has become the big white elephant in the room ... will focus more on individual true content value and quality and not be subject to a preconceived price for e-books as a whole.

This then is from Laura Hazard Owen on PaidContent.org (The Economics of Digital Content):

What’s Coming In 2012: Book Publishing

This is the second in a series of posts over the next week that will highlight key people, companies and trends to watch in 2012 in the sectors we cover most, from publishing to legal, and from mobile to advertising.



2011 was a busy and eventful year in book publishing—but 2012 promises to be even more so, as various issues that started bubbling up in ‘11 shift and mature. Here are three predictions.

Amazon and Barnes & Noble make a deal, sort of: As Amazon becomes a full-fledged publisher, it has not yet dealt with its bookstore distribution problem. For now, bricks-and-mortar bookstores are still an important place of discovery of new titles. While some have argued that Amazon will simply ignore these bookstores, that the company always takes a long-term strategy and that it won’t care if it misses some physical store sales, I think the company’s recent beefing-up of its force of sales reps suggests it does consider bricks-and-mortar stores at least somewhat significant for now. And with the company publishing books by more high-profile authors like Tim Ferriss and Penny Marshall, readers will be looking for those books in stores.

While a few indies have said they’ll be reluctant to carry Amazon books, Barnes & Noble has said straight out that it won’t carry Amazon titles in print in stores if it can’t also sell them as e-books. I predict that Amazon will offer a select number of new titles, in both print and digital formats, to Barnes & Noble (NYSE: BKS). The arrangement will probably be less than ideal for Barnes & Noble in some way, because I think Amazon will try to find a way to use Barnes & Noble stores as showrooms while still directing buyers to Amazon.com (NSDQ: AMZN). Maybe Amazon will set high list prices on all of its own new digital titles (it’s already done this with its upcoming Tim Ferriss book), while continuing to sell those books at major discounts in the Kindle store.

E-book pricing will shift to quality-focused debates: The e-book pricing debate up to now has generally focused on the idea that all e-books should cost the same and that all should be priced low. But why should a self-published or mass market thriller necessarily cost the same as a Pulitzer Prize-winning novel in e-book form? It doesn’t make sense to me to say that all e-books should cost $9.99 or less.

I am not the only one who thinks this, even though most commenters hated my $9.99 e-books post. Author John Scalzi recently announced that he’ll delete those comments on his blog “in which the focus…is how you don’t like the price of the e-book.” He writes:

"I think it’s important to understand that eBooks are not special snowflakes; they’re just books in electronic form. As someone who prefers to read in eBook form, you are not substantially different from someone who prefers hardcovers, or trade paperbacks, or mass market paperbacks. If someone who preferred paperbacks (or at the very least paperback pricing) showed up on my site on a regular basis to whine and moan about how books should always be priced at that paperback level, on a comment thread that is meant to be on another subject entirely, I would find them tiresome too. Books: They have variable price points! Based on release dates, consumer interest and format, among many other factors!"

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E-Books Dangerous to Writers and Their Livelihoods?

The number of discussions RE just how monetarily successful writers will be choosing to self-publish, even if royalties are higher, are increasing ... but, dividing into two distinct camps of thought.

You probably know the basics already: Self-published e-books are bringing higher royalties of 25% to 75% (or thereabouts), but, of very low unit priced products (say the current standard of $2.99 per e-book) ... This scenario compared with a lower traditional royalty of 10% to 15% of much higher priced books of say $20 to $30 per book ... etc, etc, ad infinitum :)

I feel all this pricing jumble in the new publishing jungle will settle out eventually ... AND, I think in the writers favor.

After all, the two essential ingredients in publishing are the writer and the consumer reader ... everyone else in between are middlemen, costly and becoming less needed.

Noted British author, Graham Swift, has a different take on the new digital self-publishing, and his view is discussed on the exceptional group blog, TechDirt, along with a rebuttal:

Author Says eBooks Will Hurt Authors Because Of Royalty Rates

from the but-the-percentages-say-otherwise dept

Opinions on the emergence of eBooks in the modern era come with all manner of widely varied opinions. We saw J.K. Rowling go from staunchly refusing to offer her works as eBooks to routing around her publisher and offering them directly to her fans. Barry Eisler turned down a huge publishing contract to self-publish his eBooks, even as the Mystery Writers of America were telling Joe Konrath, Eisler's friend, self-publishing meant he wasn't a "real author". And, of course, we have the always prevalent opposed viewpoints of the benefits of carrying your digital library everywhere versus the preference for the look and feel of a physical hardcopy tome.

But one argument I haven't heard before (and I spend a decent amount of time reading and learning about the publishing world, for obvious reasons) is that eBooks are dangerous to the future of young authors because the royalty rates won't support them making a living. That's the argument Graham Swift made in an article in The Telegraph by Nick Collins. Graham is quoted as saying:

“The e-book does seem at the moment to threaten the livelihood of writers, because the way in which writers are paid for their work in the form of e-books is very much up in the air. I think the tendency will be that writers will get even less than they get now for their work and sadly that could mean that some potential writers will see that they can't make a living, they will give up and the world would be poorer for the books they might have written, so in that way it is quite a serious prospect.”

Swift is an award-winning author and, as such, I assume he's as or more informed about the publishing world than I am, but I'm having trouble rectifying his speculation on declining royalty rates for eBooks with how such royalties are handled now. Unfortunately, because there is some variance in how royalties are handled in the publishing world, particularly with fiction, there are some distinctions to be made with how this all works.

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Libraries and E-Book Circulation and a Kindle Flaw

E-books have surpassed all expectations of popularity and have actually gained prime beachfront status in the book real estate landscape.

Libraries are now lending out e-books and some publishers are trying to figure out how not to be taken too much advantage of...while concurrently maximizing their e-book profit...Harper Collins is trying to accomplish this by limiting library, e-book circulation to 26 checkouts before the e-book goes up in a puff of electronic smoke.

It seems all this new tech has really simplified and made processes much more efficient...but, nobody has figured out just how to make any money from all the new shitsky!

Aimee Levitt , of the St. Louis Riverfront Times, has this to say:

Publisher Attempts to Limit E-Book Circulation, Libraries Fight Back

It's a brave new electronic world we live in, where blogs like this one that you're reading have replaced daily newspapers, e-mail and Facebook updates have replaced letters and phone calls, and the heavy stacks of textbooks that used to weigh down schoolkids may now be replaced with e-readers.

Only problem is, nobody's figured out how to make money on all this yet, and everybody's afraid of being taken for a sucker. That's why last week HarperCollins Publishers announced that every e-book it sells to a library can only be circulated 26 times. Then it will disappear into the electronic ether. (E-books purchased before last week, however, can continue to be checked out indefinitely.)

Librarians, naturally, were not pleased. Two librarians in the Philadelphia area, Brett Bonfield and Gabriel Farrell, have organized a boycott of HarperCollins, which encompasses more than 30 different imprints. They argue that libraries don't have the funds to keep purchasing e-books; depending on the check-out period, a book that circulates 26 times would only last a year to a year and a half, less time than many printed books.

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Amazon vs Book Publishers

As many are already aware, there is a fight being waged to control prices of digital books. Amazon initially set prices lower than their own costs to boost sales and popularity of their Kindle e-reader. The Amazon $9.99 price for all digital books upset publishers who said this would destroy the publishing business...The publishers desired a so-called "agency model" that would let them set prices and have Amazon act as a vendor or retailer who would get 30% for selling.

Simply put, my dear interested readers (and I KNOW there are many out there!), we have two adversaries with very different motivations. One wants to set lower prices and accumulate a large content inventory (question quality) to sell digital devices. NOT good for writers...While the other wants the power to set high enough prices to pay for good talent to produce future quality content that will result in higher profits realized from content-driven work rather than "at-the-moment" digital devices. GOOD for writers.

Donald Marron, The Christian Science Monitor, says this about the subject waging war:


What will the future of publishing be as the book world goes digital? The latest battle between Amazon.com and book publishers may offer a hint.

Over at the New Yorker, Ken Auletta has a fascinating piece about the future of publishing as the book world goes digital. Highly recommended if you a Kindle lover, an iPad enthusiast, or a Google watcher (or, like me, all three).

The article also describes an unusual battle between book publishers and Amazon about the pricing of electronic books:

Amazon had been buying many e-books from publishers for about thirteen dollars and selling them for $9.99, taking a loss on each book in order to gain market share and encourage sales of its electronic reading device, the Kindle. By the end of last year, Amazon accounted for an estimated eighty per cent of all electronic-book sales, and $9.99 seemed to be established as the price of an e-book. Publishers were panicked. David Young, the chairman and C.E.O. of Hachette Book Group USA, said, “The big concern—and it’s a massive concern—is the $9.99 pricing point. If it’s allowed to take hold in the consumer’s mind that a book is worth ten bucks, to my mind it’s game over for this business.”

As an alternative, several publishers decided to push for an “agency model” for e-books. Under such a model, the publisher would be considered the seller, and an online vender like Amazon would act as an “agent,” in exchange for a thirty-per-cent fee.

That way, the publishers would be able to set the retail price themselves, presumably at a higher level that the $9.99 favored by Amazon.

Ponder that for a moment. Under the original system, Amazon paid the publishers $13.00 for each e-book. Under the new system, publishers would receive 70% of the retail price of an e-book. To net $13.00 per book, the publishers would thus have to set a price of about $18.50 per e-book, well above the norm for electronic books. Indeed, so far above the norm that it generally doesn’t happen:

“I’m not sure the ‘agency model’ is best,” the head of one major publishing house told me. Publishers would collect less money this way, about nine dollars a book, rather than thirteen; the unattractive tradeoff was to cede some profit in order to set a minimum price.

The publisher could also have noted a second problem with this strategy: publishers will sell fewer e-books because of the increase in retail prices.

Through keen negotiating, the publishers have thus forced Amazon to (a) pay them less per book and (b) sell fewer of their books. Not something you see everyday.

All of which yields a great topic for a microeconomics or business strategy class: Can the long-term benefit (to publishers) of higher minimum prices justify the near-term costs of lower sales and lower margins?

Publisher Says Print Not Dead Yet...Elsewhere, Publishing Wars Heat Up: Apple Offering Kindle on iPad

Two intriguing topics today re Apple, publishers, Kindle and other e-readers:

By Ross Marowits of Canadian Press: Transcontinental (TSX:TCL.A) says the print medium isn't dying even though digital media is forcing Canada's largest printer to adjust to rapid transformation in the communications and advertising business.

"We see print and the new media co-existing for a very, very long time," chief executive Francois Olivier said in an interview Thursday following the company's annual shareholders meeting.

The Montreal-based company said that the printing, newspaper publishing and marketing firm will continue to evolve to meet the changing needs of customers.

While printed flyers will remain a primary way for advertisers to reach customers, book publishing faces dramatic challenges.

"We believe that things like the Kindle (and) iPad are probably going to take anywhere from five to 20 per cent of the printed market away . . . in the next couple of years, so it's a big big big thing for us," Olivier said.

The impact would be significant, he cautioned, but it won't mark the end of printed books. The market already has overcapacity and will lose further volumes.

Transcontinental recorded $150 million in book printing revenues in 2007, the last year it was broken out separately from magazine and catalogue revenues.

Transcontinental continues to see rapid growth of new media but Olivier is cautious about pursuing dramatic changes to its operations.

"We've got to be careful because sometimes we and our customers get carried away," he said.

The company has created a new sector that is focused on one-to-one advertising and new digital communications such as email-based marketing, e-flyers and custom publishing.

Digital media generated about $150 million last year, less than seven per cent of total revenues. But the sector grew by 30 per cent in each of the last two years. Its email marketing business has doubled its sales annually.

Olivier believes new media will increasingly be used to complement flyer printing, which remains popular and well-read.

Next month, Transcontinental will launch a web version called Dealstreet.ca for English consumers and Publicsac.ca in French.

The goal is to help retailers get more bang out of their advertising dollars while giving consumers another venue to search for and compare shopping deals.

It will also give the company a further window to changes in marketing spending and allow it to adjust to any impact on its traditional business.

Founder Remi Marcoux, who has endured several recessions, said change is inevitable but there will always be printing.

"Transcontinental was born out of change," Remi Marcoux told shareholders.

"We will continue to evolve in pace with our customers, whether businesses or consumers, to meet their new needs and new expectations."

Transcontinental acted quickly to counter the effects of the recession by closing plants and shedding 2,000 workers. The moves will trim $110 million in annual costs, including $80 million in savings last year. More jobs could be lost as the company shifts work to more efficient operations.

It also plans to dramatically reduce its U.S. footprint by agreeing to sell its direct marketing business. It remains the leading direct marketer in Canada.

The company expects its key printing sector will continue to grow slowly with a gradual recovery of advertising, which directly or indirectly drives more than 80 per cent of its business.

"What we have seen so far in the beginning of the year is no further deterioration but so far we don't have a whole lot of growth," he said at a news conference.

While Olivier said Transcontinental is willing to consider acquiring a portion of Canwest Global Communication's (TSX:CGS) newspaper assets, it has no interest in becoming a daily newspaper publisher.

"We have no interest if the assets are sold as a block. If they are sold as a piece there might be a few pieces of the Canwest assets that we might be interested in," he said.

Transcontinental is Canada's leading publisher of consumer magazines and the second-largest community newspaper publisher. Its digital platform delivers content through more than 120 websites.

On the Toronto Stock Exchange, its shares gained 10 cents to $12.67 in trading Thursday.

And in other publishing circles:

By Chris Seabury of Financial Advisory.com: Amazon and book publishers have been having heated discussions about how to sell the different e books using Kindle. At the heart of this issue, was the overall amount that would be charged to access the different e books. In the case of Amazon, the fee was determined to be $9.99 (which is to low according to the publishers). In a move to offer e books on the i Pad, Apple opened independent negotiations with publishers. The company agreed to sell e books through Kindle for: $12.99 to $14.99.

What this shows, is that various ebook readers are becoming a common feature that will be offered with different electronic devices. The news from Apple is significant, because they have been known as an innovator in technology over the last ten years. As a result, it would not be surprising to see similar deals that Apple made with publishers, involving Kindle in the future with key competitors.

More On E-Books: Will E-Books Be Napsterized?

Article from the New York Times that contrubutes to my discussions in this blog about the coming-of-age of e-books:

WILL BOOKS BE NAPSTERIZED?
By Randall Stross Published: October 3, 2009

YOU can buy “The Lost Symbol,” by Dan Brown, as an e-book for $9.99 at Amazon.com...Or you can don a pirate’s cap and snatch a free copy from another online user at RapidShare, Megaupload, Hotfile and other file-storage sites.

Until now, few readers have preferred e-books to printed or audible versions, so the public availability of free-for-the-taking copies did not much matter. But e-books won’t stay on the periphery of book publishing much longer. E-book hardware is on the verge of going mainstream. More dedicated e-readers are coming, with ever larger screens. So, too, are computer tablets that can serve as giant e-readers, and hardware that will not be very hard at all: a thin display flexible enough to roll up into a tube...Read more at http://alturl.com/h33c